Company annual reports are considered
unreliable by half of non-executive directors, finance directors
and fund managers, a research commissioned by BDO finds.

The BDO report, however, did find the majority
of respondents think financial statements in public company annual
reports are either the most important or a major element in the
investment decision-making process.

BDO said the UK boardroom does not fully
realise that annual reports form the basis of investors’
decision-making and only half of finance directors expect the
investor community to use the annual report as a major source of
information.

BDO partner James Roberts said the degree to
which annual report is thought not to achieve that purpose is
alarming.

The research was carried out for BDO by
Populus, a member of the British Polling Council. Populus
interviewed 250 financial directors at medium and large companies
and 200 fund managers who invest in medium and large companies
online between 12th and 24th May 2011. Financial
directors worked in and fund managers invested in a wide range of
industries. The questions refer to statutory audit. 

“Our research shows that while talk of the
obsolescence of annual reports is ill-founded, there is a consensus
emerging that they are in need of some major surgery. Action needs
to be taken to address the lack of trust in annual reports,
especially as their importance is still unanimously acknowledged,”
Roberts said.

According to BDO data seven out of ten fund
managers supported assurance being given on narrative information
in the financial report and called for an extended element of
assurance to be provided around the financial health of the
business more generally.

On the other hand, four out of ten of
non-executive directors were opposed to including assurance on the
narrative section and 50% thought an extended element of assurance
should be given on financial health.

Brooks Macdonald fund manager Peter Harris
said that “given that the Financial Statements within annual
reports are drawn up under the overly complex rules of
International Accounting Standards, it is little wonder that their
effectiveness is being questioned. Such is their complexity; they
almost entirely fail to deliver meaningful information on the run
rate of a business or future cash flows”.